Higher capital ratios trade growth for stability – Philadelphia Fed paper
Stricter capital requirements increase lending costs and reduce economic growth, but make a full-blown financial crisis less likely, says research published by the Federal Reserve Bank of Philadelphia.
In Are Higher Capital Requirements Worth It?, Pablo D’Erasmo says that for every 1% increase in capital minimums, lending rates increase between five and 15 basis points.
“It is reasonable to expect that increases in borrowing costs of this magnitude may curtail lending enough to create a
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